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Debt Consolidation Loans

When you have piled up a huge amount of debt and you see no other option but to file for bankruptcy, there is good news for you. Debt consolidation loans can solve your problems and make you debt free.

About debt consolidation loans

When you have acquired too many loans and facing difficulties to pay them off, you can use a debt consolidation loan to pay them off. A debt consolidation loan is a specific type of loan that is offered to you to consolidate and pay off your other loans. For instance, letís suppose you have 5 different loans with small amounts. You can pay them off with the help of a debt consolidation loan which is a loan with a bigger amount. Once your earlier debts are paid, you have to pay off this new consolidation loan with a single manageable monthly payment. In this way, you are combining them into one affordable payment that you can manage every month.

You should remember that debt consolidation doesnít lower your debt level. It just combines your debt into one loan. Debt consolidation loans are basically means to restructure your loans. Instead of paying off multiple loans, debt consolidation loans enable you to switch all your loans into one loan and pay it off comfortably. Therefore, it becomes simpler for you to handle your debts.

If you are thinking about going for a debt consolidation loan to deal with your debt difficulties, it is advisable that you talk to a debt consolidation professional.

Some financial advisors donít recommend debt consolidation loans since they consider these loans to be riskier options.

Advantages of debt consolidation loans

Given below are some salient benefits offered by debt consolidation loans:

1) Reduced interest rate

A debt consolidation loan can help you secure a lower interest rate. This is because rather than paying multiple loans, youíre just paying one loan. This makes it easier to clear up your earlier loan obligations.

2) One monthly payment

When you need to handle multiple loans and make the payments for each of them on time, it truly becomes a rigorous task. Debt consolidation helps you come out of this trap and you just need to make a single payment every month. You donít have to worry about missing payments any more.

3) Fixed interest rate

Debt consolidation loans are usually offered with fixed interest rates which save you from getting into financial difficulties. Adjustable interest rates make your future uncertain. With the help of debt consolidation loans, you are able to switch your adjustable interest rates to fixed interest rates.

Downsides of debt consolidation loans

There are some downsides of debt consolidation loans as well and some of them are given below:

1) It takes more time

When you look for lower monthly payments, you have to extend your repayment term. This takes longer time to pay off your loans and the interest costs in the long run donít make it a profitable option at all.

2) It is another loan

When you secure a debt consolidation loan, it is a new loan that you are taking. If you canít change your spending habits which led you into debt, then thereís no logic in going for another loan to pay off your existing loans.

You should weigh your options and think about the pros and cons of debt consolidation loans before you go for one. A hasty decision can put you into a worse situation than before.

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